The CFPB Must Revoke Financial Institutions’ Get-Out-of-Jail-Free-Card, Restore Consumers’ Right to Their Day in Court

March 10, 2015

The CFPB Must Revoke Financial Institutions’ Get-Out-of-Jail-Free-Card, Restore Consumers’ Right to Their Day in Court

Statement of Christine Hines, Consumer and Civil Justice Counsel, Public Citizen’s Congress Watch Division

Note: The U.S. Consumer Financial Protection Bureau (CFPB) holds a hearing today on forced arbitration. The CFPB has released the findings of its study, initiated in April 2012, on the use of binding mandatory arbitration in consumer financial services contracts.

The evidence from the Consumer Financial Protection Bureau (CFPB) is in: Forced arbitration clauses and class-action bans eliminate valid claims against bad industry practices and leave consumers of financial products and services with practically no meaningful avenue to seek remedies for harm.

Or, stated more plainly: Big Banks and financial predators are using fine-print terms in contracts as an effective license to steal. To protect consumers, the CFPB must follow up its groundbreaking study with action: a rule taking away the banks’ right to steal and ending forced arbitration.

The CFPB arbitration study (PDF) released today shines a light on harsh realities for consumers in the financial marketplace, and these realities call for an immediate fix. The data show that pre-dispute forced arbitration clauses not only restrict the rights of consumers of traditional products – such as credit card and checking accounts – they also affect non-bank products in the financial sector such as payday loans.

For example, the agency’s finding that 99 percent of storefront locations for payday lenders in California and Texas restrict consumers’ ability to access the court is astounding. It’s clear that the fundamental legal rights of the most vulnerable consumers who take out these loans are held captive by terms that the borrowers are unaware of and do not understand. Further, the payday loan industry, which has been severely scrutinized for aggressive and predatory practices, is systematically avoiding accountability.

We urge the CFPB to protect consumers and ban the use of forced arbitration clauses in consumer financial products.

Background

One-sided corporate arbitration clauses require disputes to be settled in private arbitration instead of in open court. Increasingly, the terms also prohibit consumers from participating in class actions.

The predatory practice is particularly severe in the consumer financial sector, where low-dollar abuses – such as illegal charges and add-on fees – are common. Small-dollar illegal charges can lead to significant profits for companies because they affect large numbers of consumers. Class actions often are the only economically feasible way for consumers to seek remedies for these losses and systemic violations of the law.

Public Citizen has examined forced arbitration numerous times and has repeatedly demonstrated that these clauses are in nearly every type of consumer contract and that they squash consumer claims. Very few individuals are able to hold companies accountable in arbitration, especially on an individual basis.

Forced arbitration is not a viable alternative to the court system when one side – the more powerful corporation – writes the rules for the proceeding, including choosing the arbitration provider. Arbitration would be fair only if it were voluntary – chosen by the consumer – after the dispute arises.

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Take action: Petition urging the CFPB to stand up to Wall Street and defend consumer rights